Summary

The tribunal found that a registered social landlord had not been established for purposes that were exclusively charitable and was therefore not entitled to extend the charitable exemption from corporation tax under the Income and Corporation Taxes Act 1988 s.505 and s.506 to tax years pre-dating its registration as a charity.

Facts

The appellant housing association (H) appealed against a decision of the First-tier Tribunal that it was not entitled to extend the charitable exemption from corporation tax provided for by the Income and Corporation Taxes Act 1988 s.505 and s.506 to tax years pre-dating its registration as a charity. H was a registered social landlord whose objectives included the provision of housing "for the benefit of the community" and whose articles of association directed that it should not make a profit. Prior to its registration as a charity in December 2004 it had had company status. In 2002 it had entered into a scheme whereby it refurbished and purchased a portion of the local authority's housing stock. The commissioners issued assessments to corporation tax for the tax years 2002-2004 on the basis that during that time H had been running two businesses, one concerned with providing housing and the other with providing refurbishment works to the local authority. That approach meant that H could not offset its refurbishment costs against its rental income which, in the commissioners' view, attracted corporation tax. H's position was that even prior to its registration as a charity, it had enjoyed charitable status and was thus exempt from corporation tax pursuant to s.505 and s.506 of the Act. The judge found that H had not been established for purposes that were exclusively charitable and that it was not entitled to charitable exemption from corporation tax under s.505 and s.506 for any time prior to December 2004. The issues were (i) what H's objects and purposes were; (ii) whether those objects and purposes were exclusively charitable.

Held

(1) H's principal activity was intended to be, and had in fact been, the purchase of housing stock from the local authority, its refurbishment and its letting. It could, however, pursue any of the other objects listed in its articles of association without reference to that principal activity. It could, for example, acquire houses to sell on, or give advice to other housing associations. Each of its objects was independent, and while they were linked under the umbrella purpose of providing housing to tenants for the benefit of the community, none was subsidiary or ancillary to that purpose. Nor did H's activities have to be assessed by reference to that purpose, Incorporated Council of Law Reporting for England and Wales v Attorney General (1972) Ch 73 CA (Civ Div) considered (see paras 24-26, 29-30, 34-36 of judgment). (2) H had not been established for purposes that were exclusively charitable. It could fulfil objects in a way that was not wholly charitable, and it could carry on activities that were neither charitable in themselves nor ancillary to a charitable main object. Although it had made out an argument on the basis of Law Reporting that once it was established that an object was for the benefit of the community then its purpose was prima facie charitable, the decision in Law Reporting did not represent a radical departure from Williams Trustees v Inland Revenue Commissioners (1947) AC 447 HL, Williams followed, Law Reporting, andSouth Place Ethical Society, Re (1980) 1 WLR 1565 Ch D considered. The question formulated in Law Reporting, namely whether there were any grounds for holding the object to be outside the equity of the preamble to the Charitable Uses Act 1601, had been formulated in the context of an object which could not be thought otherwise than beneficial to the community and of general public utility. That was a change of emphasis rather than a change of substance and it did not follow that that was the correct question to ask in all cases. The objects still had to be examined, it was still necessary to ask whether they fell within the spirit of the preamble, and it was still necessary to answer that question by reference to the well-established principles. H's objects were not exclusively charitable. Even its foremost object of providing housing was not per se charitable, and the words "for the benefit of the community" did not make it so. An object could be for the benefit of the community yet still not be charitable. There was a dual benefit in the instant case. The provision of housing to tenants was the medium through which H sought to benefit the community but the fact that that was an essentially private benefit which could be divorced from any need indicated that it was not necessarily a benefit conferred pursuant to a charitable object. A benefit to the community could be an indirect benefit that was not simply ancillary to a charitable objective, Inland Revenue Commissioners v City of Glasgow Police Athletic Association (1953) AC 380 HL followed and Inland Revenue Commissioners v Oldham Training and Enterprise Council (1996) STC 1218 Ch D considered. Glasgow emphasised the need for such primacy of the public purpose that the private benefits were such as to be almost inconsequential (paras 48-63 74, 78-85).